The gig economy seems to be the way of the new earth. More people than ever are freelancing and earning side income.
After all, is n’t that why you ‘re using this calculator ? You — and thousands of taxpayers like you — are learning how to navigate 1099 taxes. And that starts with figuring out how much self-employment tax you have to pay.
What does it mean to have 1099 income?
Any income that ’ randomness reported on a 1099-NEC or 1099–K is considered “ self-employment income. ” Self-employment income is just code for “ non-W-2. ” It can come from running a little clientele, freelance, or good working a casual side hustle. When you work as a standard employee, your employer mechanically withholds your income and FICA taxes ( Social Security and Medicare ) and pays them to the IRS. freelance individuals, on the other hand, have to calculate and pay these taxes themselves. tax filing for freelancers and side hustlers Most tax software is n’t built for you. Ours is. We know every kind you need and every tax write-off you can take to pay less this class.
Paying taxes as a 1099 worker
As a 1099 earner, you ’ ll have to deal with self-employment tax, which is basically just how you pay fica taxes. The combine tax rate is 15.3 %.
Normally, the 15.3 % rate is split half-and-half between employers and employees. But since autonomous contractors don ’ t have freestanding employers, they ’ re on the hook for the full sum.
If you ’ d like more details on why things work this way, check out our founder ’ s guide to self-employment tax. But for now, think of self-employment tax as those double-pop popsicles. It can be split between two people, but it comes in a individual box. There ’ sulfur no way to avoid paying for both sticks even if it ’ mho fair you .
fortunately, only your web earnings are subject to self employment taxes. That ’ s your gross income minus your business write-offs. ( More on this belated ! )
Income tax vs. self-employment tax: Why you owe both
many freelancers are surprised to learn they have to pay multiple types of taxes on their return. It seems like it should be an either or position, right ? amiss. freelance individuals have to pay both income tax and self-employment taxes.
so what ’ s the dispute ? In abruptly, your income tax is assessed on your total income for the year, whereas self-employment tax is assessed on your occupation income for the year. Your income tax can be reduced through adjustments, standard or itemize deductions, and tax credits. Your self-employment tax, on the early hand, can lone be reduced through clientele write-offs and tax credits .
How to pay your 1099 taxes
If you think you might owe more than $ 1,000 in federal income taxes, you should be making payments throughout the year — not equitable when you file your restitution.
These extra payments are referred to as “ quarterly ” or “ estimated ” tax payments. You pay your quarterly taxes on the fifteenth day following the end of the quarter.
For exercise, let ’ s say you expect to owe $ 2,000 in taxes. You would divide that amount by four and make your quarterly tax payments on the following schedule :
|Quarter 1||January – March||April 15||$500|
|Quarter 2||April – June||July 15||$500|
|Quarter 3||July – September||October 15||$500|
|Quarter 4||October – December||January 15||$500|
We haven ’ t gotten into all the kernel here — like the forms that are involved in the file process. If you ’ ra concern in more details, check out our web log post on how to pay self-employment taxes pace by step .
The 3 best ways to lower self-employment tax
now for the playfulness character — lowering your tax bill ! As I mentioned earlier, the only room to efficaciously reduce self-employment taxes is to lower your net income. here are the three best ways to do that :
Tip #1: Don’t miss your business write-offs
Most write-offs are missed because people don ’ deoxythymidine monophosphate keep track of what they buy for ferment. In the craze to pull everything together before taxes are ascribable, eligible write-offs tend to fall through the cracks. Do yourself a prefer and start keeping up with your expenses now. More of your purchases count as business expenses than you might realize, and they could significantly lower your taxable income. here are a few examples of clientele tax deductions you can take :
- 📶 Your cell phone and internet bill
- 🚗 Work-related parking fees and toll passes
- 🧑💻 Software subscriptions (such as Office 365)
- 💳 Bank and credit card fees on accounts you use for work
- 🔌 Computers and electronic accessories (chargers, adapter cables, etc.)
If you ’ re wondering where to start with this, you ’ ve come to the veracious put. The Keeper Tax app is specifically designed for gig and freelance workers. The app will find and sort all of your business write-offs mechanically. When you ’ re ready to file, all you have to do is upload your 1099s, and we ’ ll handle the pillow .
Tip #2: Consider deferring your business income
This international relations and security network ’ t a feasible choice for everyone. ( Rideshare or manner of speaking drivers, for model, are locked into a relatively inflexible payment schedule. ) But for those of you who invoice clients, consider delaying your December invoice until the New Year. hera ’ randomness why : A requital you receive on December 31st has to be reported on your tax fall by the follow April. however, a requital you get on January 1st doesn ’ metric ton have to be reported until April of the pursuit year. That ’ s 11 extra months ! Delaying your income by equitable a copulate of days can give you lots of extra breathe room to plan for taxes .
Tip #3: Prepay your work expenses
If you know you ’ re in for a afflictive tax bill, this scheme could help. here ’ s how it works : rather than waiting public treasury January to pay your regularly scheduled bills, pay them in December alternatively. For example, if your business rent is ascribable January 5th, pay it December 30th. This will allow you to claim more deductions in the stream tax year — basically borrowing from future year ’ s write-offs. If you ’ re going to use this scheme, it ’ sulfur crucial to look ahead foremost. here are some scenarios where prepay could be a beneficial move and avail you save money overall :
- You owe a sizable tax bill and haven’t made any estimated payments.
In this situation, reducing your tax liability by prepaying expenses is a good idea. The lower your tax liability, the less you’ll pay in underpayment penalties and interest.
- You don’t expect to have much — or any — self-employment income next year.
People change jobs and hop careers all the time. If you expect a major change to the type of income you’re earning, it’s probably worthwhile to maximize your write-offs now.
- You expect to have more tax-saving opportunities next year.
If you recall, only two things can lower self-employment tax: business write-offs and tax credits. So for example, if you plan to enroll in college, you’ll have a sizable tax credit to play with. In that case, borrowing from next year’s write-offs probably won’t hurt you.
You can ’ thymine write off an expense that ’ randomness more than 12 months away, but this scheme can silent give you a spot of much-needed wiggle room during nerve-racking years. At the goal of the day, Keeper Tax has your bet on. We ’ re your cheerleader, quarterback, and defensive electrician all rolled into one. Keep using our rid tools like this one, and download the app nowadays. Let us help you score a tax refund.
Sarah York, EA
Read more: What Is a Debt Management Plan? – NerdWallet
Sarah is a staff writer at Keeper Tax and has her enroll Agent license with the IRS. Her employment has been featured in Business Insider and Money Under 30. She has about a decade of populace accounting experience, and has worked with clients in a across-the-board range of industries, including oil and accelerator, manufacture, veridical estate, sweeping and retail, finance, and ecommerce. Sarah has across-the-board experience offering strategic tax plan at the state of matter and federal horizontal surface. During her time in industry, she handled tax returns for C Corps, S corps, partnerships, nonprofits, and sole proprietorships. Sarah is a extremity of the National Association of Enrolled Agents ( NAEA ) and maintains her continuing education requirements by completing over 30 hours of tax education every year. In her fifth wheel prison term, she is a give big cat ma and enjoys hike, bake, and overwatering her houseplants .